How Much Deposit Do I Need?

There are two types of deposits in property lending: deposit as a contribution towards a loan, and a deposit when purchasing a home. Both are very different.

A Loan Deposit

A loan deposit is the difference between the purchase price and the loan amount; specifically the borrowers contribution to qualify for a loan. All lenders are slightly different, however most have loan products to borrow up to 90% or 95% of the property value; this is often referred to as the loan to value ratio (LVR). A 90% LVR would mean that the borrower is contributing the other 10%.

For loans above an 80% LVR, the bank is required to have Lenders’ Mortgage Insurance (LMI) on the loan. Mortgage Insurers are separate entities to the lender and provide protection to the lender for lending a high proportion of the value of the property. LMI attracts a premium that the borrower generally pays however this fee is often able to be added to the loan so it does not require the borrower to contribute further funds upfront.

There is also a requirement with most lenders for evidence of genuine savings. This is in the form of bank statements or similar, showing that a minimum proportion of the contribution (usually 5%) has been saved up over a three or six month period.

One of the greatest benefits to using Mortgage Express is that we are able to take advantage of lenders who may provide cheaper LMI premiums, or will allow higher loan to value ratios meaning you are able to purchase your property sooner.

A Home Deposit

A home deposit refers to the amount of deposit required as part of the purchase contract and this is often either negotiated as a dollar amount (ie $25,000) or a percentage of the property value (ie 10%). This type of deposit can be discussed with the real estate agent when negotiating on price.

In some cases, having the cash for a home deposit may be difficult to obtain, especially if it is tied up in a house that is yet to sell. Under these circumstances, a Deposit Bond may be an option. A deposit bond is where you pay a nominal fee to purchase a ‘bond’ which is issued by a specialised Insurance business. There is some criteria required before a deposit bond is issued, however one of our lending specialists can discuss this with you.

Purchase costs

On top of the loan deposit, each state’s revenue office will charge some fees relating to the purchase of a property. Every state’s stamp duties, taxes and fees are varied and in some states there are concessions for certain types of buyers (ie First Home Buyers).

Use the links to each state and territory’s revenue offices below to look up the fees that may apply. Some fees related to property include: Land Transfer (Conveyancing) Stamp Duty, Title Transfer Registration fees, Mortgage Registration fees, Lenders’ Mortgage Insurance Stamp Duty and Land Tax.